Correlation Between Guangdong Wens and Shenzhen Zhongzhuang

Can any of the company-specific risk be diversified away by investing in both Guangdong Wens and Shenzhen Zhongzhuang at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Guangdong Wens and Shenzhen Zhongzhuang into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Guangdong Wens Foodstuff and Shenzhen Zhongzhuang Construction, you can compare the effects of market volatilities on Guangdong Wens and Shenzhen Zhongzhuang and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Guangdong Wens with a short position of Shenzhen Zhongzhuang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guangdong Wens and Shenzhen Zhongzhuang.

Diversification Opportunities for Guangdong Wens and Shenzhen Zhongzhuang

-0.53

Correlation Coefficient

Guangdong Wens  Shenzhen Zhongzhuang

Excellent diversification

The 3 months correlation between Guangdong and Shenzhen is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Wens Foodstuff and Shenzhen Zhongzhuang Construct in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen Zhongzhuang and Guangdong Wens is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Guangdong Wens Foodstuff are associated (or correlated) with Shenzhen Zhongzhuang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen Zhongzhuang has no effect on the direction of Guangdong Wens i.e., Guangdong Wens and Shenzhen Zhongzhuang go up and down completely randomly.

Pair Corralation between Guangdong Wens and Shenzhen Zhongzhuang

Assuming the 90 days trading horizon Guangdong Wens Foodstuff is expected to under-perform the Shenzhen Zhongzhuang. But the stock apears to be less risky and, when comparing its historical volatility, Guangdong Wens Foodstuff is 2.72 times less risky than Shenzhen Zhongzhuang. The stock trades about -0.19 of its potential returns per unit of risk. The Shenzhen Zhongzhuang Construction is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest  203.00  in Shenzhen Zhongzhuang Construction on October 25, 2024 and sell it today you would earn a total of  193.00  from holding Shenzhen Zhongzhuang Construction or generate 95.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Guangdong Wens Foodstuff  vs.  Shenzhen Zhongzhuang Construct

Guangdong Wens Foodstuff

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Guangdong Wens Foodstuff has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shenzhen Zhongzhuang

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen Zhongzhuang Construction are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen Zhongzhuang sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Guangdong Wens and Shenzhen Zhongzhuang

The main advantage of trading using opposite Guangdong Wens and Shenzhen Zhongzhuang positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Guangdong Wens position performs unexpectedly, Shenzhen Zhongzhuang can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Shenzhen Zhongzhuang will offset losses from the drop in Shenzhen Zhongzhuang's long position.

The idea behind Guangdong Wens Foodstuff and Shenzhen Zhongzhuang Construction pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.